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- Stress Test on Bank of America
- The most recent stress test done on the nation's largest banks is supposed to determine how much a banking institution would need to be able to lend if the current recession were to get worse. Unfortunately, if Bank of America was unwilling to lend when the stock price was at the lowest price of $2.53 on March 9, 2009, what would make the bank want to lend when and if the stock price is at $1.53? It is unreasonable to expect that if Bank of America were to raise $34 billion then they would lend it to the public if the economy were to get worse. A rational bank will stop lending when the economy is doing poorly and give away money when the economy is doing well. This is the reason that the U.S. government is, and always will be, the lender of last resort.
- Stop Loss Orders
- From my personal experience stop loss orders, stop order and trailing stops must be done mentally instead of as a standing order that is placed with your broker. The reason for this is:
- a stock that has a price of $20 that has a stop loss at $19 could go as low as $18.99 and then go all the way up to $21 and above. Market makers on the NYSE floor are in the position of being able to place all trades that are coming in. If the market maker can see that there is a 10 million share order to buy and you have a stop loss of 2000 shares to sell, then he can place a 10,000 order to sell that triggers your stop loss then place his own trade before the 10 million shares to buy. The ethics of this maneuver is clear, however our goal is to mitigate this problem by placing only market orders to buy and sell. Don't leave a transaction to buy or sell in someone else's hands.
- Ross Stores (ROST)
- After looking at the stock chart of Ross Stores we learned a couple of important things. First, Ross has recently hit a brand new high, this is despite the fact that the stock market had been falling for the last 2 years. This means that if you had bought ROST when the Dow Jones Industrials Average peaked in October 2007, you would have more money today than back in 2007. The second thing that we can see is the matter of ROST having a clear pattern of peaks and troughs. The troughs have occurred on the following dates:
- 11/20/08
- 1/8/08
- 8/14/06
- 9/28/05
- 8/31/04
- 3/4/03
- From this data we can expect that the next bottom in the price of ROST will take place between the period of Oct. 3 2009 and May 20, 2010 at a price near $23-$19. Along with ROST, another company in the apparel business with a similar price pattern is Aeropostale (ARO). Look for ARO to fall along with ROST.
